The government will stay observant of the political trends in Southern Europe, especially the formation of a ruling coalition in Greece and the internal uncertainty in Spain and Italy, and it will also pay close attention to conclusions reached in the current G20 summit and the next meeting of the European Union's finance ministers, Premier Sean Chen said June 19 in a Cabinet meeting addressing the latest developments of the European debt crisis.
The premier also expressed serious concern about domestic financial institutions' capital management in the global financial market and whether relevant costs had increased, since the recent debt situation in Europe has caused bank runs in Greece and Spain. Central Bank Governor Perng Fai-nan and Financial Supervisory Commission (FSC) Minister Chen Yuh-chang both responded that so far the crisis's impact on Taiwanese banks' capital movement and cost has been manageable: the former has not been a problem, and the latter has not risen.
According to FSC statistics, domestic financial institutions' direct exposure to the euro-denominated debt of Greece, Italy, Spain, Portugal and Ireland is around NT$23.4 billion (US$783.5 million), less than 0.07 percent of Taiwanese banks' total assets.
"The negative impact of the Europe's sovereign debt crisis on Taiwan's financial sector has been limited so far. However, from a global perspective, the situation in the European Union deserves close attention. The U.S.'s slow recovery is not strong enough to stimulate the eurozone, and judging from the latest Purchasing Managers' Index, mainland China's economic situation is less than ideal. Therefore, Taiwan needs to adopt a cautious attitude toward Europe's sovereign debt crisis," the premier said.
In addition to existing measures promulgated by the FSC, Premier Chen also asked the central bank to keep a close eye on the development of economic and financial situations at home and abroad, employ appropriate monetary policies in a timely manner, maintain ample liquidity to sustain economic vitality and preserve order in the foreign exchange market as well as the stability of the New Taiwan Dollar's exchange rate.
The premier also asked the FSC to continue monitoring the potential impact of the European debt crisis on the domestic financial market and industry, implement timely and appropriate measures to stabilize finance and the stock market, strengthen the capital market and require financial institutions to enhance their ability to assume risk. The central bank has also agreed to maintain sufficient foreign currency liquidity for domestic financial institutions based on the developments of the international financial market.
The Council for Economic Planning and Development (CEPD) has scheduled a series of financial symposiums to take place between mid-June and mid-July. Premier Chen also approved the Ministry of Economic Affairs' (MOEA) proposal to hold a national industrial development conference in the second half of the year to solicit opinions and formulate responsive measures accordingly. Premier Chen noted that this conference will not only be held this year; it will be convened regularly to replace the industrial and business development conferences that were held in alternating years in the past.
In addition, the MOEA is currently promoting a development project for small and medium-sized businesses, central and southern Taiwan, youths and lower-middle-income households, and it is considering launching a third import substitution campaign targeted at the energy industry.
The premier also said the decline of the nation's export-to-order ratio from 99 percent in 2000 to 70.7 percent in 2011 is an issue of serious concern. Over the past six months in particular, the value of orders for export goods received in Taiwan has far exceeded the value of exports from the island itself, he noted. This demonstrates that enterprises have been receiving orders in Taiwan and manufacturing the goods overseas in increasing numbers every year, decreasing job opportunities on the island.
Therefore, aside from promoting the 2012 Soaring Dragon Plan and tapping emerging markets such as Southeast Asia, the government should devise ways to bring production back in Taiwan, Chen said. He asked the CEPD to coordinate with relevant government agencies to proactively resolve issues concerning the land and labor manufacturers need to invest in Taiwan. The CEPD should also help make Taiwan's investment environment more attractive to draw Taiwanese businesses to reinvest in Taiwan and thus increase domestic employment opportunities, he stated.